China is about to open the floodgates on its huge supplies of cotton, sparking a rout in prices. The country plans to auction about 2 million metric tons from May through August, a government statement showed Friday. That’s almost equal to total shipments expected this season from American growers, the world’s top exporters. The auction sales would represent about 14 percent of the 13.9-million tons that the U.S Department of Agriculture estimates that China has in its stockpiles.
Cotton futures fell the most in six weeks. The price slid more than seven percent in the past year in part because the large Chinese inventories curbed overseas purchases from the Asian nation, the biggest consumer of the fibre.
“We knew this was coming, but it’s probably a bit more than what people were expecting” and reduces the country’s import outlook in the near term, Keith Brown, president of brokerage Keith Brown & Co. in Moultrie, Georgia, said.
Cotton for July delivery fell 1.1 percent to 60.18 cents a pound at 11:58 a.m. on ICE Futures US in New York. Prices dropped as much as 2.8 percent, the biggest intraday decline since Feb. 29.
Adding to the outlook for bigger supplies is favourable growing weather in US cotton areas. Rains in the next few days will boost soil moisture in Texas, the country’s top producer, according to MDA Weather Services in Gaithersburg, Maryland. Drier conditions will aid planting in the US Southeast, the forecaster said. American farmers are expected to increase plantings in the season that starts in August as low prices for competing crops leave farmers with few options, the USDA projects.
“Any increase in production, as well as any volume pushed out of Chinese reserves, will be added to globally available supply in the coming crop year,” Cary, North-Carolina-based industry researcher Cotton Inc. said in a report this week. “High levels of available supply can be expected to keep downward pressure on prices.”
Still, the auction sales come as China’s crop is set to shrink this year to the lowest in more than a decade, USDA data show. That’s reducing global output by more than 16 percent, the biggest annual slide since at least 1961. As the Asian country depletes inventories, in the “long-run it’s positive,” for prices because it means that there will be less supply further down the road, boosting the outlook for eventual imports, Brown said.